Archive for the ‘Reverse Auction’ Category

Part II of II. Are reverse auctions a good tool to use in the retail distribution cost plus arena?

Friday, March 3rd, 2017

 

Todays post is by Ron Southard, CEO at SafeSourcing

Yesterdays post reviewed why and how this author felt that reverse auctions were potentially good for both the distributor and the retailer alike. So just what is cost plus?

According to Wikipedia  Cost-plus pricing is a pricing method used by companies. It is used primarily because it is easy to calculate and requires little information. There are several varieties, but the common thread in all of them is that one first calculates the cost of the product, and then includes an additional amount to represent profit. It is a way for companies to calculate how much profit they will make. Cost-plus pricing is often used on government contracts, and has been criticized as promoting wasteful expenditures.

Once unit level cost has been established for the distribution of products it’s easy to turn that into a percentage and add it to the price of a product coming up with a distributed unit price or category price. The most important part of this pricing exercise for the distributor is to get the distribution costs correct. This can include price of storage, freight, length of travel, driver cost and any number of other costs. This is an area where a distributor can lose a lot of money if they are not very careful.

So, are revere auctions a tool that can help distribution companies?  The answer is a clear yes both above and below the gross margin line. If you like to know more please contact me at ronsouthard@safesourcing.com.

We look forward to and appreciate your comments.

Part I of II. Are reverse auctions a good tool to use in the retail distribution cost plus arena?

Thursday, March 2nd, 2017

 

Todays post is by Ron Southard, CEO at SafeSourcing

A lot of distributors have told this author that reverse auctions don’t apply to them because they use the cost plus model and as such they just add their price or profit margin on top of the contract price with their source to drive their distributed price.

The fallacy in this thinking is that it may make buyers and category managers lazy in their approach to driving margin within the categories that they manage. This results in a higher price to the retailers they distribute to and ultimately to the consumer or their customers customer. A worst case scenario is that the consumer stops shopping at their customer’s store which reduces overall volume and further increases prices by not meeting volume incentives. It’s a slipper slope.

Off course this argument is relatively easy to overcome when we get around to discussing capital goods and expense related products and services area. These areas have an impact on the distributor’s net profit. And I’m sure that many of you will agree that just because one says they are a cost plus provider does not necessarily mean it’s true in the most pure sense of the definition.

Check back tomorrow and we’ll review what the real definition of cost plus is in part II.

We look forward to and appreciate your comments.

Will a Reverse Auction always result in savings?

Thursday, March 12th, 2015

 

Todays post is from our archives by Ronald D. Southard, CEO at SafeSourcing Inc.

To the above point, this author has never seen a single category or product that can not be sourced using a reverse auction. And, I know many will argue this point with me. My answer however is a little more complex and is based on the evolution of original reverse auction or e-negotiation tools. As these tools have evolved, so have the processes associated with them whereby today’s tools have many features that support the entire RFI to RFP process within the same toolset resulting in a final compression event of reverse auction?

The process is really what determines the success of your e-negotiation event and that includes the determination of what it is you are looking to measure. Simply indicating that you want to reduce last year’s price or the price from your last contract is not always a fair analysis. Markets fluctuate daily and a year after your original contract, markets that drive the product you are sourcing may not be favorable to reducing your current price. However utilization of these tools may be able to help you reduce prices you might have to pay while prices are rising or put another way help you avoid costs. Cost avoidance is a good thing, particularly if your competition is not doing the same thing.

In many cases, if your contracts are not current and you have not used these types of tools to negotiate your current pricing and you do not know where to find alternative sources of supply; you will most likely see savings during the first year. After that the category and commodity driving it will determine further compression, holding prices constant or cost avoidance. All are a benefit of todays best of breed e-negotiation tools.

If you’d like to learn more as to how SafeSourcing can reduce your cost of goods, capital budget or expenses, please contact a SafeSourcing Project Manager.

We look forward to and appreciate your comments.

Don’t Run out of of the Back to School Supply’s!

Wednesday, July 30th, 2014

Todays post is by Ronald D. Southard, CEO at SafeSourcing Inc.

Retailers; are your Back to School supplies up to date? Do you have appropriate stock?

A quick reverse auction or RFQ that we call The ABC’s of School Supplies can get you caught up quickly.

It seems like the summer has just begun, but buyers need to be thinking about back to school supplies. The actual supplies required differ from preschool to college aged students and teachers.

Unfortunately if you don’t have what the person (normally mom) shopping for all students is looking for; you may lose all of the affiliated sales and ultimately your customer.

How many times have shoppers come to your store looking for something simple and then leaving without buying anything? It probably happens more often than you think. On the other hand, if you have a well stocked department you might be surprised by the number of additional items customers buy when they find the primary item they were looking for.

Relative to school supplies, you should probably consider the following list of categories if you want to cover all of your consumers needs.
.
A. Academic Calendars & Planners
B. Arts & Crafts Materials
C. Accessories
D. Backpacks
E. Binders
F. Calculators
G. Chalk, Erasers & Cleaners
H. Computer Media
I. Crayons & Markers
J. Dies Punches & Accessories
K. Drafting Supplies
L. Educational Software
M. First Aid & Personal Care and Anti Bacterial Supplies
N. Glue, Tape & Self-Stick Notes
O. Index Cards,
P. Report Covers & Portfolios
Q. Locker Accessories
R. Maps & Globes
S. Paints
T. Paper & Notebooks
U. Pens, Pencils & Markers
V. Reference Books
W. Rulers &  Compasses 
X. Scissors
Y. Staplers
Z. Teaching Aids

Each of the above categories obviously has a number of products associated with it. At times any one of these products could support a reverse auction by itself based on the size of the retailer and the volume associated with the category

The SafeSourcing product specifications library already has specifications on each of these categories and they could all be run within a week. Please contact a SafeSourcing Customer Services Account Manager in order to find out more.

We look forward to and appreciate your comments.

If you can improve profitability 73%, Why don’t more companies use reverse auctions and other e-procurement tools?

Wednesday, July 2nd, 2014

Todays post is from Ronald D. Southard, CEO at SafeSourcing Inc.

Todays reverse auctions are web/cloud based  Software as a Service (SaaS) offerings that are part of very sophisticated procure to pay applications that let retailers and other companies find the best suppliers for any resale or not for resale product or service they wish to source.  Using a web based reverse auction tool, retailers, other companies or groups of companies (Group Purchasing Organizations) can invite far more suppliers to take place in reverse auctions than they could possibly find or manage using traditional sourcing methodologies. During the reverse auction event they can review on one page all responses from suppliers, data about suppliers, notes from suppliers, product specifications and other necessary information at an instant. Upon auction conclusion which is typically less than 30 minutes retailers and other companies can review savings scenarios and award business from their desktop.

Now let’s get to the simple financial benefits. Let’s assume a $150M Retail Company with industry average earnings of one percent or $1.5M. Additionally cost of goods for this company is 70 percent or $105M. Let’s also assume this company were to only source ten percent of their for resale or above the gross margin line spend or roughly $11M. With below industry average savings of ten percent, total savings generated would be $1.1M which is a direct impact to net profitability. If all other segments of the P&L perform to plan and all savings are recovered during the same business calendar year net profitability would increase to $2.6M or a 73% improvement.

Wen company’s  can begin almost immediately (SaaS/Cloud offering) with no risk (Cost Neutral Pilots)  and no IT involvement,why don’t more companies use reverse auctions and other e-procurement tools? That’s a great question!

If this author were you, I just could not ignore this type of opportunity. If you’d like to learn more, please contact a SafeSourcing Customer Services Account Manager.

We look forward to and appreciate your comments.

Want to get promoted? Eliminate these same old tired objections.

Tuesday, April 8th, 2014

The following are the all too common objections we hear daily from procurement knowledge workers that both have and have not been exposed to e-negotiation tools in the past.

1. We already get the best cost.
2. We’ve done business with our supplier for years.
3. We don’t have product specifications.
4. We don’t have time for this.
5. Switching costs will be too high.
6. We can’t insure the same quality.
7. We need to adhere to certain standards.

If you don’t feel that these benefits would support both corporate goals and underlying CSR initiatives, give us a call and we’ll make you a hero and get you promoted.

We look forward to and appreciate your comments

When is the right time for retailer buyers to run reverse auctions for Thanksgiving Turkeys?

Wednesday, November 27th, 2013

Just because you need to buy a product or service does not mean that you will receive the optimal price for that product. For certain products there are better times to run e-procurement events and if you miss that opportunity by even a couple of weeks the lost savings could be astronomical.

Some consumers give this considerable thought when they buy products like cars, computers, televisions, furniture and even certain food products. Retail buyers should be doing the same. If you are the poultry buyer planning for Thanksgiving, you do not want to be buying your frozen turkeys in July and quite frankly if you buy them in March you are probably going to miss out on some savings. The same could be said for just about any type of fresh produce. You can certainly get everything in today’s world at any time of year, but there are better times to do it than others.

A couple of tangential examples that require careful thought would be landscaping services and snow removal services for store parking lots and distribution centers. The services for the most part may be provided by the same suppliers. The optimal time to source landscaping may be the month of March while the optimal time for sourcing snow removal services may be September. These months also mark the beginning and end of the respective service seasons for each service. Even though you may get the service from the same provider, keeping the services separate leaves the leverage with the retailer when you source the other service for the upcoming season. This is also the time when the suppliers are looking for business that will sustain them through the upcoming season as another winds down.

Make sure you ask your e-procurement solutions provider to assist you with the apropriate timing to source your goods and services.

If you’d like us to help source your turkeys next year, call us now as February is on a couple of months away. Please contact a SafeSourcing customer services account manager

We look forward to and appreciate your comments.

How does the Law of Diminishing Return apply to eProcurement RFQ reporting?

Friday, September 6th, 2013

Today’s post is from Ryan Melowic, Assistant Vice President, Procurement COE at SafeSourcing

My experenience with eProcurement RFQ reporting is that procurement team’s eyes are often bigger than their stomachs.  I say that because there are lots of numbers gathered during an eProcurement RFQ.  That data can be sliced and diced many different ways in order to show many different scenarios.  What procurements teams need from an eProcurment RFQ is just a few options.

One option is to look at all Low Qoutes.  What this identifies is how many vendors would need to be awarded  in order to relize maximum savings.  AS an example when  a company has 81 current suppliers and they can now award 14 companies in order to maximize savings it makes good sense to explore this oppritunity because 14 suppliers represents an 83% reduction in sources of supply and the administrative improvements associated with that reduction..

A second option  to consider is that of Low Company.  This  provides a single source of supply option.  In some cases it’s just plane scarey to put all of a companies eggs in one basket.  In most cases this option is a reduction in savings compared to the all low quote scenario.

A third option to consider is a hybread award scenario.  This  takes into consideration low quotes, overall low companies and potential another option like by division or number of vendors.  Typically, the top preformers are defined globally and then  an analisys is  conducted by location.  This data shows which of the top companies show the most savings by location.

A final option  might be to identify what saving looks like when vendors are selected by division and a split award is considered.  For instance if a company has 10 locations 3 locations are awarded to one vendor  and the remaining  to another.  When you do this type of scenario analisys  savings numbers are typically reduced.

When you apply the Law of Diminishing return to eProcurement RFQ reporting please keep in mind anything outside of what procurement teams need to make the award descion is an over abundance of data.

If you are interested to learn how  the SafeSourcing’s team can help your company get the right amount of data in order to make a descion please contact our customer service team.

We look forward to and appreciate your comments

 

Sourcing Freight inbound or outbound can be very tricky! Make sure you know what you are asking for.

Wednesday, May 8th, 2013

The simple answer is no, and quite often this can be the most complicated part of any e-bid, reverse auction or traditional procurement process.

Sourcing freight lanes or shipping lanes is a project all its own. A shipping lane simply put is the general movement of products between two areas. The first is the departure area and the other is the arrival area. This gets more complicated when we start to discuss full loads versus less than full loads and haul back opportunities that accomplish the optimum in a transportation cost model.
 
When you structure your reverse auction, simply asking for a net landed cost or assuming that means free freight or free freight within a certain radius of the origination point is just not that easily accomplished.

By example, I’ve seen companies include language in their Terms and Conditions that state all freight must be free for the first 500 to 1000 miles.  This can work to reduce freight charges, but the rest of the event needs to be set up very carefully or you just end up robbing Peter to pay Paul.

If you really want to understand your net landed cost, then you should have line items in your event that are specific, measureable and bid on separately. When a company says they want a net landed cost what they are referring to is the cost of a product or products plus all of the relevant logistics costs, such as transportation, warehousing, handling etc. In other words, what’s my cost when it gets here or where we want it?

If you want to drive the best pricing and service possible you need to understand what you are asking for and make sure it is clear in your specifications and terms and conditions.

If you’d like to learn more about reducing your total inbound and outbound shipping costs, please contact a SafeSourcing customer services account manager.

We look forward to and appreciate your comments.

No matter what our current government leaders say, the economy is still terrible.

Tuesday, October 23rd, 2012

This author still can not believe how many companies, buyers and category managers do not advocate for the use of modern e-procurement tools.

The use of these tools preserves and creates jobs as well as generating many other benefits that your business is not receiving today.

The lack of use can really only be one or two reasons at this point. First is that you or your procurement team just go to work and do your job and don’t really care one way or the other. Second is that you do not stay up to date in your trade and have very little influence within your company. If this is not true, why are you still writing your own RFI’s and RFP’s for a small group of suppliers?

Maybe now there is a final chance to step up and try or recommend using e-procurement tools including reverse auctions? Who knows, maybe you’ll save enough money to save someone’s job, hire someone new or insure that your job will still be there when next years planning is complete.

Although they may not impact your job directly, the reduction of cost of goods, expenses and preservation of capital are all immediately achievable if you’ll just take a look.

A customer recently told me that they would not be adding any new jobs to their procurement department next year. In fact they have already more than doubled the size of their departments staff to drive  down costs through the use  of the SafeSourceIt™ family of procure to pay tools. This customer went on to say that others in other departments will in fact be able to keep their jobs as a result of the work we’ve done together. So in the worst economy since many of us have been alive, this customer has added jobs, protected jobs, saved significant money, improved quality with the use of SafeSourcing products. Another benefit is that we also continue to add jobs to support our customers during this same time.
In addition to all of the benefits listed above, here are some additional quotes from a CEO and his team that watched their first reverse auction.
1. “This was pretty simple to do”
2. “If we hired someone we could do these ourselves with you guys”
3. “This is fun”
4. “You mean the reports are already available”
5. “I love the sports concept”
6. “It was easy to follow the marquis and what was going on from one screen”
7. “The multiple color schemes were great”
8. “I can’t believe how fast you guys set this up”
9. “We saved that much money and only have to pay what we discussed”
10. “Can we do another one today”
11. “I may get a promotion out of this”
12. “I love that calculator at the end of the bid process”
13. “I like all of the supplier data that was accessible during the auction”
14. “Now I know how the big guys get the pricing they do”

It’s too bad our current political combatants for the highest office in our land can not be this detailed during their debates.

Why not join others that have come a little late to the party. You can still benefit because today’s tools are easier to use, more interactive, maintain your attention during an auction, integrate gaming technology to keep it fun and are lower cost than their predecessors. If you happen to have already been doing this for years, why not find an easier way or do it less expensively.

If you would like to have fun, save money and do it quickly, please visit us at www.safesoucing.com.

We look forward to and appreciate your comments.